Low Cost Product Pricing Strategy

Low Cost Product Pricing Strategy

When setting prices for low cost items, do you apply the same margin as high cost items?

The price consultants at PricePoint Partners have come across many businesses that use a single margin across products with various cost levels. While this may be an easier approach, it’s important to consider that the cost to order the item, receive it, store it, sell, handle  it and ship it may be the same for low cost items as high cost items. This tends to be particularly true for distributors.
The costs are about the same to inventory and handle an item whether it is an expensive product or an inexpensive subassembly or component. In order to maintain sufficient margins, low cost products should realize a higher margin percent. And, high cost items should realize a lower margin.
This will result in gross profit dollars that will vary significantly by product. But, in the end, you will see an overall improvement in margins.
About the Author

Ralph Zuponcic

President, PricePoint Partners

Ralph is a national authority on strategic pricing. He has been featured in publications including The Wall Street Journal, Fortune Small Business, CFO Magazine and Marketing News.

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